U.S. Picks Citigroup, JPMorgan to Manage GM Shares Sale

Mark Reuss, president of General Motors Co. (GM) North America, arrives to speak at the SAE Convergence conference in Detroit. Photographer: Jeff Kowalsky/Bloomberg

Jan. 17 (Bloomberg) -- The U.S. Treasury Department chose
Citigroup Inc. and JPMorgan Chase & Co. to manage the sale of
shares in General Motors Co., as the government works to
disentangle itself from the biggest U.S. automaker following the
$50 billion bailout that began in 2009.

The department announced the selection of the banks in
documents on its website yesterday. It holds about 300 million
shares after selling 200 million to Detroit-based GM for $5.5
billion in December. The banks will get a commission of 1 cent
per share for handling the sales, the Treasury documents show,
which would be about $3 million in fees for the entire stake.

The sales may reassure GM investors weary of the
government’s influence on the stock. GM had sunk 23 percent from
its November 2010 initial public offering price before the sale
was disclosed last month. Since going public, GM has announced
plans to end losses in Europe by mid-decade and to introduce 13
new Chevrolet models this year to try to increase its share of
the U.S. market.

The shares have gained 22 percent in the past year. They
advanced 0.6 percent to $29.49 at the close today in New York.

The department said in December that it would sell off the
rest of its 19 percent stake within 15 months, starting as soon
as January. The U.S. needed to sell its shares for more than $50
each to break even on the GM bailout.

Banks’ Benefits

Citigroup and JPMorgan could potentially make additional
money from bid-ask spreads and build relationships with clients,
said Kip Weissman, a partner representing banks for Luse Gorman
Pomerenk & Schick PC in Washington.

“It’s real important for major firms to be major players
and to be able to get customers the stock they want,” said
Weissman, whose firm isn’t involved in the sales. “If the
customers are clamoring for getting GM at a good price, JPM and
Citi will be able to do that, and that means those customers
will use them for other services.”

Representatives at Treasury, JPMorgan and Citigroup
declined to comment.

For the banks, “there’s a certain level of prestige” in
handling the sale, said Stephen Myrow, a former Treasury
official in the George W. Bush administration. “They can say,
‘Hey, the U.S. Treasury trusts us.’ JPMorgan and Citi wouldn’t
be doing this if they didn’t feel it was in their interests.”
Myrow is now managing director at ACG Analytics Inc., an
investment research and consulting firm in Washington.

Fee Structure

While the 1-cent-per-share fee rate is very low, the banks
may be interested in doing the sale to gain market share, said
Jay Ritter, finance professor at the University of Florida in
Gainesville. While the deal will give the banks a boost in that
respect, it won’t be easy work, said Reena Aggarwal, finance
professor at Georgetown University in Washington. Investors
perceive rival Ford Motor Co. as better managed, which may make
GM shares tougher to sell, she said.

The bailouts of the predecessors of GM and Chrysler Group
LLC by U.S. and Canadian governments propped up a light-vehicle
industry that has since reported three straight years of at
least 10 percent growth. GM received $49.5 billion from the U.S.
as part of its restructuring, Treasury said Dec. 19.

Bailout Costs

Last month, Treasury sold its last 234.2 million shares of
insurer American International Group Inc., marking the end of
the rescue more than four years after the U.S. took over the
company to save the global economy. Proceeds from the sale
boosted the U.S. profit on the AIG bailout to $22.7 billion.

The Congressional Budget Office projected in October that
the Treasury’s Troubled Asset Relief Program, which bailed out
companies such as AIG, Citigroup and GM, will cost taxpayers $24
billion, down from an estimate of $109 billion in March 2010.

The Treasury’s latest estimate of the expense to taxpayers
for bailing out GM, Chrysler and Ally Financial Inc. amounted to
$24.3 billion as of Sept. 30. The department updates the figure
on a quarterly basis.

U.S. sales of cars and light trucks totaled 14.5 million in
2012, the best since 2007. The 13 percent gain was the biggest
since 1984.

Auto Profits

U.S.-based automakers have said they can now be profitable
at industrywide sales of about 10 million vehicles annually in
their home market. In 2013, industry sales are projected at 15.1
million, the average estimate of 18 analysts surveyed by
Bloomberg.

GM increased sales in its home market by 3.7 percent last
year to 2.6 million. Because its growth didn’t match the
expansion of industrywide sales, GM’s U.S. market share in 2012
plunged to 17.9 percent, an 88-year-low.

Chief Executive Officer Dan Akerson told reporters earlier
this month the company should see “modest” gains in U.S.
market share this year.

“It starts and ends with product, that’s what we’ve been
focused on since bankruptcy,” Akerson told reporters at the
company’s Detroit headquarters. This year and next “will be
good years, not only here domestically but on an international
basis.”